LESS! is available on Amazon

LESS!: Essays on Business Transformation is now available on Amazon Kindle.

The hardcover version of LESS! is available from Lulu and quite expensive ($46.53). The Kindle and ePub versions are just $6.89. We do not use DRM protection, so when you buy the book, it is yours. You can put it on any device you want, and on as many devices you want. Please keep the copies in your family though.

I am very proud of LESS!. I am particularly proud of the fact that I did not write most of it. LESS! is a collaborative work, and working with the other authors has been a privilege I cannot adequately describe. One of my best adventures ever.

LESS! is about building better places to work:

Have you ever had a great idea crushed by the words, "we can't do that, because it's not in the budget"? Then you really need to read up on Beyond Budgeting. Bjarte Bogsnes, VP of Performance Management at Statoil and Dr. Peter Bunce, Director of the Beyond Budgeting Round Table, have written two chapters helping you free yourself from the chains of budgeting.

If you look around you at work, and see people with great potential, but somehow things never get together like they should. The sum of the work is always less than the sum of what the individuals can do. Then Making the Entire Organization Agile, the chapter by Steve Denning is for you. Steve is a former director of the World Bank. He is a deep thinker with unsurpassed practical experience. In November 2000 he was selected as one of the world's ten Most Admired Knowledge Leaders (Teleos).

If you want to do Lean or Agile, what is you and your organization's position on Theory X and Theory Y? Why do you need to know about them? Because Agile and Lean are Theory Y based, and your organization is most likely Theory X based. X and Y ideas don't mix well. Not understanding the difference is a major cause of failure when implementing Lean or Agile. Dan Bergh Johnson's chapter Agile and Lean do not fit into Taylor's Glove will get you up to speed on the all important fundamentals.

And that is just for starters. There is lots more, by authors like James Sutton, Karl Scotland, Håkan Forss, Ola Ellnestam, Brian Hawkes, Maarit Laanti, Ari-Pekka Skarp, and me. And you might want to check out the Foreword by John Hagel III. John is a great author in his own right, Director at Deloitte LLP, and co-chairman of the Deloitte Center for the Edge.

I promised the Mexican photographer Herminia Dosal I would write an article about the story behind a picture she shot of me. At the time I made the promise, I did not realize how awkward I would feel putting myself on the cover of my own eMagazine, even though I love the photo. In the future, I will try to get Herminia's permission to publish some of her other work. Believe me, most of her models are far better looking than I am.

By the way, if you read the Introduction, you will find a link to the LESS! resource page. That is where we put links to free material you might be interested in, such as the Tempo! newsletter. The issue you see above is in review at the iBookstore right now, but you will find four older issues on the resource page.

If you do buy LESS!, please do write a review at Amazon, Lulu, or Goodreads. Honest reviews help me figure out how to make the next book even better.

Why Cities Live and Companies Die

When cities grow larger, productivity per person increases. When companies grow larger, productivity per person decreases. Cities can last thousands of years and survive plagues and nuclear blasts. Large companies have an average lifespan of fifteen years, and the lifespan is dropping.

It is blindingly obvious, except almost nobody noticed until a couple of years ago: Companies have short lifespans. Cities live thousands of years; Cities can survive plagues and nuclear bombs. Companies croak when there is a slight downturn in the economy.; People want to live in large cities, but they want to work in small companies.

Why? What is the difference, and does it matter? If we understand why cities are so resilient, can we use that knowledge to build better companies? Companies that are more resilient and better places to work?

It turns out we can. Physicist Geoffrey West has studied cities and found a very simple mathematical relationship between city size and productivity: When a city doubles in size, each person in the city becomes about 15-20% more productive.

The astonishing thing is that everything that has to do with the city infrastructure follows the same power law. According to West it holds for wages, supercreative people per capita, and patents per capita. (On the flip side, the power law also holds for crime per capita, and flu per capita.)

The productivity increase in cities is in stark contrast to what happens in companies. According to an article in the CYBAEA Journal, when a company grows, productivity per employee drops.

For comparison, I have plotted the power rules governing city and company productivity:

When cities grow larger, productivity per person increases by about 15% each time the city population doubles. In a company, productivity per person drops when the company grows. The fundamental difference: Cities are networks, most companies are hierarchies. 

What this graph shows is that a city is much better organized than the average company. But why?

Cities are networks. They are to a large extent self-organizing. Nobody tells you where to live, where to shop, which friends to spend time with, or where to work, or whom to vote for. You figure all that out for yourself, based on the knowledge you have about the city.

Companies are very different: You are told where to sit, what to work on, whom to work with, when to take a break, and who your boss is. You have comparatively little latitude to exercise your own judgement.

What companies are missing is the power of self-organization. Here is another way to look at it:

Donella Meadows's System Intervention Scale

Company leaders usually focus on the low end of the Meadows scale: They set targets like "increase sales by 20%", or "reduce costs by 10%". They make budgets and set project deadlines, which is saying they allocate money and time buffers. Sometimes they make a reorganization, which means they mostly mess around with stock and flow structures.

Cities leave most of that to its inhabitants. City planners are concerned with overall system structure, but they mostly let people make their own decisions, and that is what makes cities resilient, productive, and powerful.

Value streams in functional hierarchies vs. value streams in networks. From my book Tempo!.

Why are companies so much more vulnerable to damage than cities? There are several reasons, but most have to do with the way companies split in order to manage growth. Companies divide into functional departments. This causes problems when information or physical material is moved from one department to another. Hand-offs are difficult to manage, and you can have many value streams that interfere with each other. this problem becomes worse the more cost effective an organization is, because increasing cost effectiveness means reducing the capability to absorb variation in the value streams.

Add to that, that if a single node in a functional organization is damaged in some way, it may affect all value streams running through that organization.

For example, if the IT department suffers from work overload, you can't do anything but wait until they get to your request. I have worked at companies with waiting times of 9-18 months for simple requests like setting up a server.

On the other hand, in a city, if you can't get the service you want when you want it, you go someplace else. If the grocery shop closest to where I live closes, I won't starve. I just shop my food somewhere else.

According to the book Creative Destruction by Richard Foster, the lifespan of large companies is shrinking steadily. In 1938 the lifespan was about 75 years. In 2010 it was about 15 years.

It is when you link the productivity figures with company Return On Invested Capital and life expectancy numbers that the results get really scary. According to the 2010 Shift Index by Deloitte, ROIC has dropped from 6.5% in 1965 to 1.3% in 2010.

Steve Denning has pointed out that a study by Richard Foster, using data collected by McKinsey, shows that the life expectancy of companies have been shrinking steadily. In 1938 the life expectancy of an S&P Fortune 500 company was about 75 years. In 2010 it had shrunk to about 15 years.

The amazing thing is that we do have plenty of blueprints for building companies that are as resilient as cities, but with rare exceptions, we don't. There are signs that things are looking up though. We may have a phase shift, a rapid transition from the old hierarchies to network based organizations pretty soon.

Sustainable Leadership seminar by The Hunger Project

 Julia Norinder, CEO of Preera, and the main speaker talked very passionately on the need for sustainable leadership.

I've just been to a seminar on sustainable leadership. The seminar was arranged by The Hunger Project (The Swedish web site is here) and hosted by Ernst & Young.

I am glad I went: Two good speakers, a great workshop, and an interesting panel discussion.

The Hunger Project is a global organization fighting poverty by investing in human potential. In practice, The Hunger Project helps people in developing companies by means such as micro-loans and education.

Sara Wettergren, CEO of the Hunger Project

Sara Wettergren, CEO of the Hunger Project was the first speaker. She talked about the Hunger Project and how the organization works to eradicate poverty in the world.

When Sara talked about how the organization has to change the mindsets of the people they want to help from "I am alone, there is nothing I can do" to "I am part of something larger. I can make a difference", it struck me that the problems she described, feelings of helplessness, isolation, is exactly the same problems I see in many business organizations.

Helping others is a great way to help oneself. I bet that many companies around the world can learn a lot from The Hunger Project.

Julia Norinder, CEO of Preera

Julia Norinder, CEO at Preera made a passionate presentation about the need for leadership adjusted to the world we live in. Julia advocates looking at organizations as living organisms, not machines. This is of course an argument that resonates with me. Organizations are made of people. People are living organisms, not machine parts.

Moving from a machine view to an organic view means moving from control, instructions, and hierarchies to vision, values, understanding and dialog. This is not yet the mainstream view, but it is a view that is steadily gaining traction. (If you have read LESS!, you may recall that my co-author James Sutton wrote about organizations as organic entities.)

Anastasia Nekrasova from Intelligent Mindsets.

 Anastasia Nekrasova from Intelligent Mindsets ran an interesting workshop based on a real case:

Josefine Lassbo, CEO of Reflective Circle, wanted help developing a vision and a growth strategy for her company. Turning to an outside group to get many different perspectives on what the business should be is a smart thing to do. Ultimately, it is of course up to Josefine to define why she is in business, but input helps. Developing a good vision statement is difficult. Getting multiple perspectives can speed up the process considerably.

Josefine Lassbo, CEO of Reflective Circle

The audience was split into groups to discuss the vision and the strategy. Here is my group:

My discussion group at the workshop, except...

...Carina Jonsson, who made our group's presentation after we were finished.

It is worth noticing that much of the value from an exercise like this is due to most of the participants not being experts. We business strategists tend to think in similar patterns due to our sharing of a common body of knowledge. Put a more diverse group together, and you are much more likely to come up with a unique and valuable insight.

The seminar finished off with a panel discussion about sustainable leadership.

The panel: Caroline Trowald (Conferencier); Kristina Cohn Linde, CEO of Mig; Eva Hyllstam, Leadership Trainer; Liselott M Daun, Senior Consultant at Ernst & Young; Gustaf Josefsson, Innovation strategist

The panel discussion was interesting and the panel members had a wide range of opinions about leadership and organization.

I believe events like this are important: They are a sign that there is progress. Though management science has progressed enormously the past sixty years, we actually see very little of it in the way companies are organized and lead. Change is much overdue, and I am glad to see signs of it.

Major change tends to happen like when you try to get ketchup out of a glass bottle: First you get nothing, then you get nothing, then you get everything at once. Scientists call this phase transition, but I'll save that for another blog post.

Is Facebook corrupting us?

When we discuss corruption, and we do, at least in the media, the focus is nearly always on some spectacularly greedy, dishonest, and stupid act. I believe it is a good thing that this kind of corruption is exposed, but there is another, more subtle kind that worries me.

First, let's define the word "corruption":

In philosophical, theological, or moral discussions, corruption is spiritual or moral impurity or deviation from an ideal.

– Corruption, Wikipedia article 

For example, in a contest, we are expected to abide by the rules of that contest. If the judge in a football match judges in favor of the team he likes the most, because he likes it, then the judge is corrupt.

On the other hand, in a popularity contest, voting for the person you like the most is not corrupt. It is the expected behavior.

We have always had a problem with very complex contests, like political elections. Most people do not like to grapple with complex issues, so they substitute something simpler, like:

• Which politician do I like the most?
• How do my friends vote?
• Which policy do I like the most? (Without regard to the total effect of all the policies suggested by the party.)

Politicians aren't exactly helping. They make a lot of speeches, but I haven't yet seen a politician use a Causal Loop, Stocks & Flow, or TLTP diagram, or anything similar. Instead, they rely on long-winded speeches, and documents so obtuse they obfuscate the issues rather than clarifying them.

Of course, politicians are like most other people, they choose their position first, then look for arguments to support their point-of-view. This is much easier than actually figuring things out, experimenting, testing, working with scientists...

There are of course exceptions to the rule among politicians, just as there are among other people. (I have actually met politicians which I judge to have integrity, honesty, a very high degree of intelligence, and who understand the issues they work on very well. It is just that they are a minority, regardless of which party they are from.)

Robert Cialdini, a professor of Psychology and Marketing has constructed a highly useful model for how and when people substitute a simple problem when they are faced with a difficult one. The Cialdini decision model looks like this:

The Wikipedia article on Cialdini contains more detailed information. 

Right before writing this part of the post, I was in a discussion about the US presidential election. There was a newspaper with pictures of Obama and Romney on the front page.

My interest was in the techniques Obama and Romney use to project a certain image. For example, both Romney and Obama had their shirt sleeves rolled up to indicate they are prepared to work hard. Romney had a a tie, indicating he is at home in board rooms. Obama had no tie and the top button of the shirt unbuttoned to indicate he has a strong working class connection.

My discussion partner focused on the faces: "Obama looks a lot nicer than Romney." I also noticed she spent a lot more time looking at Obama's face than at Romney's.

This is a very good example of the Cialdini rules kicking in. Instead of discussing the policies the candidates want to implement, a quite complex issue, we substitute things our brains are good at, like decoding facial expressions.

This is not necessarily a bad thing. If you need to make a snap judgement, even a very brief look at a face can give you valuable information. However, when it comes to judging a complex issue, using a mechanism designed for snap judgements can easily lead to making the wrong decisions.

BTW, she was right. Obama looked a lot friendlier than Romney. Then again, that impression could easily be reversed simply by comparing different photos.

So, where does Facebook enter the picture? We'll, a lot of contests are run on Facebook. Since I am interested in photography, I get messages about photo contests. Of course, when my Facebook friends enter a contest of some sort, they post a message about it.

What disturbs me is that with very few exceptions, the people who enter such contests send a message encouraging others to vote for themselves, not to look at the contest and vote for the best submission.

This is, by definition, corruption. For example, in a photo contest, the idea is that the best photo should win. What actually happens is that the contest turns into a popularity contest. People are admonished to look only at a single photo, and then vote.

A Facebook contest may be a trivial thing, but it teaches people to cast their vote for an alternative without even looking at the other alternatives. This bothers me.

We need in a complex world, where the things we do can have very large consequences. To survive and thrive in such a world, we need more brainpower, not less. We need more decisions to be carefully thought through, not more snap judgements.

We can't pay full attention to everything. For example, if I intend to vote in a photo contest with 10,000 submissions, I won't have time to compare all of them with each other. However, I can look at some of them, and pick the photo I think is best.

Above all, I can be mindful of my own behavior, so that I can consciously choose when to think a choice through, and when to cruise on autopilot. This is something most people can learn, and I believe social media sites could be designed to encourage that kind of self-awareness.

Imagine how the world would change if Facebook was designed to encourage people who use it to think, and to think about when they need to think. Maybe that would help us build a better future.

Perspectives - To buy or not to buy a book?

I am working on a new book, the working title is Perspectives. The purpose of the book is to show how the lofty ideas about management and leadership applies to everyday management decisions. I want to show how having more than one perspective can have a great impact on every day decision making.

The following essay is an early sketch that may become a chapter in the book. I will publish more preview chapters in the newsletter supporting LESS!, the book I co-wrote with eleven other management experts not too long ago. By the way, the ePub version of LESS! is free, if you promise to write and publish an honest review.

Here is the preview chapter for Perspectives:

To buy or not to buy a book?

Imagine you are running an IT department employing fifteen people. Anna, a young software developer asks you if the company will pay for a book she wants to read. The book is about XML Forms. You have no idea what XML Forms are. The book costs $17. Should you let her buy it?

This is one of the countless every day decisions a manager has to deal with. You obviously can’t do a detailed Cost/Benefit analysis every time a decision like this is called for. Instead, you make a quick decision based on your gut feeling. However, depending on your perspective, your gut feeling will be very different. Let’s have a look at the implicit reasoning behind your gut feeling. We will use the following perspectives:

• Cost Accounting
• Theory X
• Theory Y
• Options thinking
• Queueing Theory
• Strategy

Cost Accounting perspective

The answer, straight from the gut, is no, no book!

The reasons are simple and obvious: Spending money on a book incurs a cost, but there is no clear benefit for the company. No customer has asked for XML Forms. Anna does not currently work in a project where XML Forms would be needed. Even if she did work in such a project, it would probably be cheaper to use currently available technology instead of spending time and effort learning something new.

Theory X perspective

The quick answer is no, no book!

Anna is not trusted to make a $17 decision, but you are. The reason is that you, as a manager, have a much better grasp of the big picture than Anna. If you cannot see how the book would benefit the company, then it probably won’t.

Another reason is that the expenditure of buying the book would go on record. If you give Anna permission to buy the book, your own manager might hold you responsible for incurring a needless expense. If you deny Anna’s request, the matter ends right there. There will be no record of the request being denied, because no transaction has taken place. Thus you will not be held responsible for any opportunities that might be lost by Anna not reading the book. As we have already concluded, the probability of such an opportunity occurring is very low anyway.

Options thinking perspective

The gut answer is yes, Anna can buy the book!

If Anna reads the book, the company will gain the ability to use more options in certain situations. Are those options likely to be worth more than $17? The average value of the options is:

Probability of using the options x Value of options used - Cost of buying the options

The cost of buying the options is $17. You have no clue what the other variables are for this particular book, but you can make an educated guess if you pose the question this way:

If employees in your unit read 100 work related books, can they, and you, leverage the knowledge gained to make more than $1,700 for the company?

If you are in a business where technology changes rapidly and customer requirements are varied, the answer will almost certainly be yes.

Theory Y perspective

Anna bought the book on her own initiative, without asking you.

Anna is an intelligent, responsible adult. She works on software worth millions of dollars. Every day, a decision made by her can make a difference of many thousands of dollars on the bottom line of your company. That is part of the nature of knowledge work. Obviously, she can make a $17 decision on her own.

If Anna had asked you before buying the book, that would have been a sign that you must help her gain confidence and rely more on her own ability to make decisions.

Queueing Theory perspective

Anna can buy the book on her own initiative, without asking.

Let’s assume that Anna costs $100 per hour, or $1.67 per minute. You cost $130 per hour, or $2.17 per minute. If Anna makes the decision herself, she can make it in less than a minute. The cost of the decision is about $1.67. If Anna has to ask you, you will spend at least five minutes each. Anna has to explain the reason for her request before you can make a decision. Those 5 minutes will cost $19.2 (5x1.67+5x2.17).  The decision will cost $17.53 more (19.2-1.67) if you make the decision than if Anna does it. That is $0.53 more than the cost of the book itself.

Even if you always made the right book buying decision and Anna always made the wrong one, it would still be cheaper to let Anna make her own decision. Thus, the simple rule is that Anna can make such minor decisions for herself.

Strategy perspective (Maneuver Conflict)

As a commander in Vietnam, I wanted to unleash my marines on the enemy, not control them.

Thinking Like Marines, by Col. Mike Wyly USMC (Ret.)

Anna bought the book on her own initiative, read it and liked it. She wrote a review for goodreads.com, made a video review for amazon.com, amazon.co.uk, and your company’s book review channel on Youtube.com. She also made an entry about XML Forms in the company’s wiki based online encyclopedia. She added links to the PDF article, and updated the PDF article with a link to the XML Forms article. (As it turned out, the PDF 1.5 specification references the XML Forms specification, and your company has an interest in PDF technology.)

Finally, Anna used the book as source material for the monthly Pecha Kucha^[1] night at your company. When Anna was done with the book, she put it in the bookshelf in the company cafeteria. You saw the links to the reviews on the company Twitter list, which aggregates tweets from every tweeter in the company.

You like Anna’s energy and initiative. Based on her presentation at Pecha Kucha night, you might give the book a quick read, just so you know what the developers are talking about when you have lunch with them. You make a note to ask Anna to show you how XML Forms can be integrated in the tactics of your unit.

In this version, Anna did what you trained her to do: She took the initiative and made the most of the opportunity that presented itself. By reading the book she increased her own competence and created new options for your company and yourself. She then proceeded to spread an important message outside the company: “These people know their stuff! They are actively building their competence.” Note that every person who reads or watches one of her reviews, will also see your company name. Inside your company, Anna made sure that everyone who is interested in forms technology knows about the book, and also knows that she knows how to use XML forms.

From a strategy perspective, Anna has strengthened interactions with potential allies outside your company, and also strengthened interactions between people inside the company. She has considerably reduced friction, in this case the startup cost of using a particular technology.

Your role in this is as a leader and an enabler. You have trained Anna in IOHAI leadership^[2]. You have participated in setting up the company Wiki, the book review channel on Youtube, and the accounts your unit has on Twitter and Goodreads. You are responsible for keeping your unit targeted on the overall Noble Vision of your company.

In this version, your company is very likely to be organized as a network of small units, capable of independent action, responsible for their own value streams, but working to achieve a common goal, a Noble Vision. You are much more likely to be the leader of such a unit, than to be the manager of a functional department.

Implications

In 1995 I was co-owner of a small technical documentation company. One of my co-owners, who remains a close friend of mine, and I each bought a book about the Structured Generic Markup Language (SGML), Developing SGML DTDs: From Text to Model to Markup, by Eve Maler and Jeanne El Andaloussi. We quickly took to calling it “The Green Book”, because of the color of the cover. Buying The Green Book was the first step on our journey to become SGML experts. We did a lot more than just buying and reading a book of course: We bought and read many, many more SGML and XML books. We built SGML/XML document authoring systems just for the fun of it. I built a system for reading FrameMaker MIF documents and converting them to XML. I also built a system for managing XLinks in XML documents. XLink is a way of creating various types of links in XML documents.

We adapted our company strategy to incorporate the things we were passionate about. As a result, we were in a perfect position when our largest customer decided to switch from using FrameMaker to using an SGML/XML based document authoring system in 1999. A couple of years later, the MIF to XML conversion system I built for practice became an integral part of a system for processing medical records. My friend integrated the XLink system I built into a commercially successfull XML document management system. Today, more than ten years later, not a single line of the original code remains, but the ideas about how to build a robust, user friendly XLink system live on.

At least five different companies benefited from our original decision to buy and read The Green Book. The total profits accrued from that decision amounts to millions of dollars. I buy and read about twenty work related books a year. The cost is negligible compared to the total profits accrued from reading The Green Book. Even if my friend and I had never bought anything useful again, our reading habits would have paid off handsomely. Note that in monetary terms, other people benefited much more than we did. I think we got most of the fun and excitement though. However, had we not owned our own company, it is unlikely that any of this would have happened.

The most common answer when an employee asks if their employer will spring for a book is “no!”. The employees learn quickly that knowledge is not valued in the organization. The people who are passionate about what they do will eventually leave, not because of the book buying decision, but because of the underlying mental models of the managers. Only the apathetic will remain, because apathy is the only alternative to going crazy.

Without a steady flow of new knowledge, the company will be increasingly out of touch with the world around it. Customers and competitors will adopt new technologies faster than the company can. Strategy, tactics and organization will fall behind. When the customers leave, this is merely the result of a long process of erosion within the company.

The problem is that the Cost Accounting and Theory X perspectives are so prevalent in our companies. Cost Accounting is based on the ideas of taylorism. Taylorism is based on Theory X premises about workers. If you work in a Theory X based hierarchical, functionally divided organization, and is evaluated on cost Accounting measures, you are unlikely to even know about other ways of thinking, and other ways of doing. Even the idea that there may be other ways is unlikely to occur. You, your co-workers, and your company, are trapped in a closed system.

If you can break out of the closed loop, you will be able to see that there is great value in other ways of doing things. Reading a book might be the first step.

Further thinking

• How do the managers and leaders at your company value new knowledge and learning? What is the message they are sending to employees? If they do not actively support learning, what does that tell you? How often do you hear them speak about what they have learned themselves?
• As a manager/leader, would you prefer the Theory X/Cost Accounting style of management, or the Theory Y/Maneuver Conflict style of leadership? If you prefer the Theory Y/Maneuver Conflict model, what are your fellow managers most likely to prefer? If most of you are likely to prefer the Theory Y/Maneuver Conflict style, what is stopping you from doing it? How can you remove or get around the obstacles?
• The US Marine Corps has a reading list, providing a list of books that Marines must have read at each grade level. The list includes both fiction and science books, books about strategy, tactics, philosophy, and different cultures around the world. Higher ranking marines must read everything lower ranking marines read, plus the books graded at their own rank. What would a reading list for your company look like? If you find it difficult to put such a reading list together, why is that? If you find it easy, why?
• Are there any other perspectives that might be important to a book buying decision? What are they? What insights do they add?

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[1] Pecha Kucha is a presentation format where all presentations use 20 presentation slides. Each slide is hown exactly 20 seconds. Slide transitions are automatic. This forces presentations to be short and to the point. There is a Pecha Kucha organization that arranges Pecha Kucha presentation nights all over the world. See www.pecha-kucha.org.
[2] IOHAI is a military leadership model. It is part of the Maneuver Conflict strategy framework. I have described IOHAI in more detail in my book Tempo!.